Internal Revenue Bulletin:
2007-24

June 11, 2007

Notice 2007-47

Deductibility of Lodging Expenses

PURPOSE

This notice advises taxpayers that the Internal Revenue Service and
the Department of the Treasury intend to amend regulations under § 262
of the Internal Revenue Code relating to the deductibility of lodging expenses.

BACKGROUND

Section 162(a) allows as a deduction all the ordinary and necessary
business expenses paid or incurred during the taxable year in carrying on
any trade or business. Section 162(a)(2) provides that expenses deductible
under § 162(a) include traveling expenses (including lodging expenses
that are not lavish or extravagant under the circumstances) while away from
home in the pursuit of a trade or business.

Section 262(a) provides generally that no deduction is allowed for personal,
living, or family expenses.

Section 1.262-1(b)(5) of the Income Tax Regulations provides that the
costs of a taxpayer’s lodging not incurred in traveling away from home
are personal expenses and are not deductible unless they qualify as deductible
expenses under § 217.

Under § 1.132-5(a) of the Income Tax Regulations, the value
of a working condition fringe is not included in the gross income of an employee.
A “working condition fringe” is any property or service provided
to an employee of an employer to the extent that, if the employee paid for
the property or service, the amount would be allowable as a deduction under
§ 162 or 167.

INTERIM GUIDANCE

The Service and the Department of the Treasury expect to amend § 1.262-1(b)(5)
to provide that the costs of a taxpayer’s lodging not incurred in traveling
away from home are personal expenses and are not deductible unless they qualify
as deductible expenses under § 162 or 217.

Pending the issuance of additional published guidance, the Service will
not apply § 1.262-1(b)(5) to expenses for lodging of an employee
not incurred while the employee is traveling away from home that an employer
provides to the employee, or requires the employee to obtain, under the following
conditions:

(1) The lodging is on a temporary basis;

(2) The lodging is necessary for the employee to participate in or be
available for a bona fide business meeting or function
of the employer; and

(3) The expenses are otherwise deductible by the employee, or would
be deductible if paid by the employee, under § 162(a).

This issue will not be raised in any taxable year ending on or before
publication of the guidance and, if already raised as an issue in examination
or before the Office of Appeals or the Tax Court in a taxable year ending
on or before May 23, 2007, the issue will not be pursued by the Service.

DRAFTING INFORMATION

The principal author of this notice is R. Matthew Kelley of the Office
of the Associate Chief Counsel (Income Tax & Accounting). For further
information concerning this notice, contact Mr. Kelley at (202) 622-7900 (not
a toll-free call).